Test: Tariff and Non- Tariff Barriers - UGC NET MCQ

Tariffs are taxes imposed on imported goods to make them more expensive, thereby making domestic products relatively cheaper and more competitive. By increasing the cost of imported goods, tariffs aim to protect domestic industries and encourage consumers to buy locally produced goods. This practice can lead to trade disputes and impact global supply chains.

• Assertion is true because trade barriers can indeed limit the benefits of trade by restricting comparative advantage, leading to reduced specialization and economic growth.
• Reason is false because while consumers do face higher prices and reduced choices due to limited import competition, this alone does not fully explain the impact of trade barriers on specialization and productivity.
• Therefore, the reason does not correctly explain the assertion, making Option C the correct answer.

• Assertion is true as exporters in countries with trade barriers can face retaliation from other nations, impacting their ability to compete globally.
• Reason is also true because restricting the most efficient producers from supplying globally can indeed lead to a decline in global living standards.
• The reason provides a logical explanation for the assertion, making Option A the correct answer.

Import bans, while often intended for legitimate reasons, can be used as protectionist measures through technicalities, ultimately leading to higher costs for consumers who are deprived of access to the banned products. This restriction can disrupt the flow of goods and limit choices for consumers, affecting market dynamics.

Non-tariff barriers refer to regulations or rules, excluding taxes, that countries implement to control trade. These barriers can create obstacles for businesses looking to sell products internationally. They include measures like quotas, licensing requirements, and standards, all of which can impact the ease and cost of conducting cross-border trade.

Governments impose tariffs on imported goods primarily to make domestic products more competitive. By making imported goods more expensive through tariffs, domestic products become relatively cheaper and more appealing to consumers. This strategy aims to protect local industries and promote their growth by reducing competition from foreign products.

• Assertion is correct as tariffs are indeed imposed to protect domestic industries by increasing the cost of imported goods.
• Reason is also correct as tariffs do lead to higher prices for consumers as foreign goods become more expensive.
• However, the Reason is not the correct explanation of the Assertion because even though tariffs lead to increased prices for consumers, the primary purpose is to protect domestic industries rather than directly impact consumer prices.

• Assertion is correct as negotiating trade agreements is indeed seen as a more sustainable approach to international trade.
• Reason is also correct as trade agreements focus on fostering open trade policies for mutual benefits.
• The Reason correctly explains the Assertion as trade agreements aim to create a framework that benefits all parties involved by reducing trade barriers and promoting fair trade practices.

Economic integration:

• It is an agreement among nations to reduce or eliminate trade barriers and agree on fiscal policies.  
• Economic integration can be classified into five additive levels, each present in the global landscape:

1. A free trade area 
   • ​This is the most basic form of economic cooperation. Member countries remove all barriers to trade between themselves but are free to independently determine trade policies with non-member nations.
   • An example is the North American Free Trade Agreement (NAFTA).
2. Customs union. 
   • This type provides for economic cooperation, as in a free-trade zone.
   • Barriers to trade are removed between member countries.
   • The primary difference from the free trade area is that members agree to treat trade with non-member countries in a similar manner.
3. Common market. 
   • This type allows for the creation of economically integrated markets between member countries.
   • Trade barriers are removed, as are any restrictions on the movement of labour and capital between member countries.
   • Like customs unions, there is a common trade policy for trade with non-member nations.
   • The primary advantage for workers is that they no longer need a visa or work permit to work in another member country of a common market.
   • An example is the Common Market for Eastern and Southern Africa (COMESA).
4. Economic union. 
   • This type is created when countries enter into an economic agreement to remove barriers to trade and adopt common economic policies.
   • An example is the European Union (EU).
5. Political union.
   • It represents the potentially most advanced form of integration with a common government and where the sovereignty of a member country is significantly reduced.
   • This is only found within nation-states, such as federations, where a central government and regions (provinces, states, etc.) have a level of autonomy over well-defined matters such as education.

Therefore, the correct sequence is B, E, A, C, D. 

All of the above options are aspects of the Uruguay Round Agreement on Agriculture (URAA).

• Tariff binding: This is the process of agreeing to limit tariffs on agricultural products.
• Tariffication: This is the process of converting all non-tariff barriers to trade in agriculture into tariffs.
• Tariff cuts: This is the process of reducing tariffs on agricultural products.

Reduction in subsidies and domestic support: This is the process of reducing subsidies and other forms of domestic support for agriculture.
The URAA was a major agreement that was reached during the Uruguay Round of trade negotiations, which took place from 1986 to 1994. The URAA was designed to reform the global agricultural trading system and to make it more fair and open.